Terms of Use

Recovery Falters

These extracts from my trading diary are for educational purposes
and should not be interpreted as investment or trading advice.
Full terms and conditions can be found at
Terms of Use.

Agreement amongst leaders at the G20 to halve current budget deficits within 3 years is likely to lead to slower growth, but a more sustainable long term outcome. The key is to restore stability, thereby re-igniting growth. The catch is that zero interest rate policies and high budget deficits, intended to restore growth, actually undermine stability and end up destroying growth in the long term.

US treasury yields declined, with ten-year yields falling below 3.15 percent to signal a primary down-trend. This suggests a flow of funds from equities into bonds as investors seek a safe haven.

Bellwether transport stock Fedex broke through primary support to signal a bear-trend — with negative implications for the broader economy. A similar breakout by UPS would strengthen the signal.

The TSX Composite is headed for a test of primary support at 11400. Twiggs Money Flow (13-week) reversal below the rising trendline would warn of another down-swing. Failure of 11400 would signal a primary down-trend.

The DAX is headed for a test of resistance at 6350. Breakout would offer a target of 6900*. Twiggs Money Flow (13-week) reversal below zero, however, would warn of selling pressure — negating the bullish divergence.

The Sensex is retreating Tuesday from resistance at 18000, but narrow consolidation between 18000 and 17500 would remain a bullish sign. Upward breakout would offer a target of 20000*. And a higher trough on Twiggs Money Flow (13-week) would indicate buying pressure.

The Seoul Composite retreated to 1710 on Tuesday afternoon. Bullish divergence on Twiggs Money Flow (13-week) indicates buying pressure, but failure of support at 1700 would warn of another test of primary support at 1550. Breakout above 1750, however, would signal an advance to 1950*.

The Shanghai Composite Index retreated below 2500 Tuesday, confirming the primary down-trend. The long-term target for the decline is 2100*. Recovery above 2700 is most unlikely, but would warn of a bear trap.

* Target calculations: 2700 - ( 3300 - 2700 ) = 2100

The Hang Seng Index is retreating from resistance at 21000. Respect would confirm that the index remains in a down-trend. Weakness on the Shanghai index is likely to drag the Hang Seng lower. Bullish divergence on Twiggs Money Flow (13-week) remains a positive sign, however, and would be strengthened by breakout above the previous peak at 15%.

The Baltic Dry Index reversed through support to signal a primary down-trend. Falling shipping rates indicate declining demand for dry-bulk commodities such as iron ore and coal, especially from China.

The Baltic Dry index is a composite of shipping rates in different vessel classes and may be prone to distortion because of over-supply in the largest, Capesize category. The next-largest, Panamax category, however, confirms the signal with a similar downward breakout.

The ASX 200 broke out below its rising broadening wedge, signaling another down-swing. Failure of support at 4250 would confirm. Bullish divergence on Twiggs Money Flow (13-week) continues to signal an advance to 5000.

* Target calculation: 4300 - ( 4600 - 4300 ) = 4000

It's not hard to stand behind one's successes. But to accept responsibility for one's failures... that is devilishly hard!

~ Vaclav Havel, writer, dramatist, and first President of the new Czech Republic.

Perfect Your Market Timing
Learn how to manage your market risk.

The weekly Trading Diary offers fundamental analysis of the
economy and technical analysis of major market indices,
gold, crude oil and forex.